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Comments on the draft regulation respecting voluntary retirement savings plans

Release Date: 04/22/2014
Staff Reference: Yves Millette

(English Translation – Original delivered in French)

April 22, 2014

Mr. Denys Jean, President and Chief Executive Officer
Régie des rentes du Québec
Place de la Cité, 2600 boulevard Laurier
5th Floor
Québec, QC G1V 4T3

Subject: Prepublication of the Regulation respecting voluntary retirement savings plans

The Canadian Life and Health Insurance Association (CLHIA) has examined the draft regulation referred to above and would like to submit its comments. Overall, the regulation meets our industry's expectations. The Appendix to this letter sets forth a number of proposals for additional amendments and clarifications aimed at reducing the regulatory burden.

However, we wish to call to your attention three specific concerns. The first pertains to the effective date of the registration of a plan when the Act comes into force on July 1, 2014; the second concerns the fees payable with the annual statement; and the third relates to the collection of some personal information.

Effective date of a plan as at July 1, 2014

We believe that it would be in the interest of the Régie des rentes, administrators, employers and plan members that a plan filed with the Régie on or before July 1, 2014 by an administrator registered as an authorized administrator with the Autorité des marchés financiers and certified by it, in accordance with the provisions of the Voluntary Retirement Savings Plans Act (2013, chapter 26) and its regulations, take effect on July 1, 2014. Under subsection 113(3) of the Act, the cases in which a VRSP may become effective on a date before the date on which it is registered may be determined by regulation. Therefore, this could be specified in section 5 of the draft regulation.

Fees payable with the annual statement

The fees set out under section 10 of the regulation (i.e., $1,000 plus $5 for each plan member on the ending date of the fiscal year) are very substantial for the administrator, particularly during the early years of the plan. In the first year, for example, these fees alone would represent more than 50% of the maximum management fees that plan members may be charged in relation to the default option (i.e., 1.25%).

Moreover, the fees would be prohibitive in respect of members who set their contribution rate at 0% and those who enrolled in the plan late in the fiscal year. In our opinion, fees should be payable only once a member has completed a calendar year; where the member’s contribution rate has not been set at 0%; or where the total value of the member’s account exceeds $5,000. The fees payable per member should instead be expressed in the form of basis points and should be deducted from the members' accounts, in addition to investment fund management fees (set at a maximum of 1.25% or 1.50%).

Personal information

We believe the requirement to disclose gross salary, in paragraph 5 of section 20 of the regulation, should be removed, as this information is generally not provided for other types of pension plans. This would require the administrator to verify and report changes in contribution rates or perform other verifications not provided for in the Act. Verifying changes in contribution rates based on salary would make for a high-cost, not a low-cost, plan. Such verifications would have to be performed for each member, as the contribution rate varies by individual. This differs significantly from the verifications currently required with respect to SPPs or regular DC plans, which relate to an overall remittance based on a contribution rate that is applied to all plan members. Also, there may be frequent salary changes for certain employees, such as part-time or seasonal workers. We think the administrator’s responsibility should be limited to reporting the non-remittance of contributions to the administrator by an employer.

We also believe the following information should be added, as it may be necessary for the VRSP administrator. We would otherwise suggest that this list not be considered exhaustive: effective date of employment, gender, language of communication, and contact information beyond the mailing address (telephone number and email address).

Yves Millette
Senior Vice President, Quebec Affairs

Other amendments and clarifications requested

1. Refusal

The reasons for refusal set out in section 8 of the regulation should be expanded to allow the refusal of individuals who are not Quebec residents or employers whose activities are under federal jurisdiction.

2. Information available on website or in writing upon a member's request

Section 15 of the regulation states that an administrator must make available on its website or provide in writing, on receipt of a request from the member, the information referred to in section 14 or any other equivalent information it must divulge in accordance with the legislation applicable to it.

In our opinion, this section should be amended to allow any “information that it must divulge in accordance with subparagraph 2 of the first paragraph of section 19 of the Act, paragraph 1 of section 7 of the regulation, and subparagraphs 12, 13 and 14 of the first paragraph of section 53 of the regulation” to be made available on the administrator’s website or provided in writing upon request from a member, rather than included in the summary or notice, as the case may be, sent to each member.

With respect to section 14 of the regulation, we believe that the reference in the first paragraph should be to subparagraph 2 (rather than subparagraph 1) of the first paragraph of section 19 of the Act. Also, it would be helpful to specify what is meant by "the return on investments set" in subparagraph 6 of the first paragraph of section 14.

3. Fees an administrator may charge to members

We believe that section 18 of the regulation should be amended to include other fees an administrator may charge to plan members where these fees are not optional for the administrator, such as the amount of fees payable annually for each member (section 10 of the regulation), fees for NSF cheques or withdrawals, and requests for copies of a statement of participation or a tax slip.

In addition, members who make frequent transactions (short-term trading) should be charged a fee or penalty that would be paid into the fund (not into the administrator).

4. Changing plans

The first paragraph of section 21 should specify that if the member elects to leave the amounts he has accrued in the plan, the employer will not be required to make remittances to more than one plan.

The second paragraph should be removed. In the case of, for example, a 5-year fixed-term guaranteed investment, each monthly contribution constitutes a separate investment, meaning that there would be 60 guaranteed investments with a fixed 5-year term. If the employer is allowed to leave amounts in the plan, there will be 60 maturities. The practice is for the administrator to perform a market value adjustment on each of the investments using the interest rate in effect at the time. This will result in a capital gain or loss for the member, but these are not "costs related to the transfer of the employee accounts" within the meaning of section 50 of the Act. It would then be up to the member to make an election pursuant to the first paragraph.

5. Setting the contribution rate at 0%

We would like some clarification regarding the reasons for differentiating between members whose employer also contributes to a plan, and members whose employer does not contribute, for the purposes of setting the contribution rate at 0% as provided for in section 23 of the regulation.

According to section 56 of the Act, a member may not change the contribution more than twice per 12-month period, unless the employer agrees that the member do so more often. The conditions for setting the rate at 0% are determined by regulation, in this case, section 23 of the regulation, which stipulates that a member must contribute for more than 12 months in order to be able to set the rate at 0%, unless the employer also contributes. We wonder about the reason for this difference, when the principle is that a member may change his contribution to the plan at any time. Also, it is important to clarify that these rules do not apply to self-employed workers and other investors.

With regard to the notice that is to be given, no formalities are specified in section 56 of the Act, whereas section 23 of the regulation requires a signed written notice for setting the rate at 0%. Under Quebec law, a document is valid regardless of the medium on which it is found.

6. Refunds and transfers

Section 29 of the regulation outlines certain circumstances in which a member may withdraw funds from his locked-in account. A locked-in account does not automatically cease to be locked in because of a member's age. Subsection 68(3) of the Act and section 29 of the regulation refer to small amounts.

7. Statement of participation upon termination of employment

Paragraph 2 of section 95 of the Act applies to termination of employment only, whereas paragraph 1 of section 54 of the regulation also stipulates that a notice must be provided on the date on which the member reaches age 55. The regulation should refer to the date of termination of employment only.